Mattel sorry for smearing China's reputation

September 22, 2007|By Michael Oneal, Tribune staff reporter

BEIJING — Mattel Inc.'s weekslong effort to extract itself from a tainted-toy crisis took a humiliating turn Friday when the company publicly apologized to the Chinese people and acknowledged damaging the reputation of China's manufacturers.

Only days after Mattel Chief Executive Robert Eckert outlined in detailed congressional testimony how toxic lead paint used by Chinese manufacturers slipped past the company's testing system, one of his lieutenants flew to Beijing to declare that the majority of the more than 21 million toys Mattel has recalled in recent months resulted from Mattel design problems, not Chinese manufacturing issues.

The twin mea culpas illustrate both how worried Mattel is about its global reputation and how vulnerable it is to any disruption of a Chinese manufacturing base that accounts for more than 65 percent of its products. Mattel's apology was almost universally seen as an effort to protect its relationship with China.

"It's quite remarkable," said Oded Shenkar, a China expert at the Ohio State University Fisher College of Business. "These U.S. companies think that they are on top of it [when they outsource to China]. But they are dependent on the government to a very large extent."

In a statement released after the apology was made, Mattel equated the China meeting with Eckert's appearances before Congress.

"Since Mattel toys are sold the world over, Mattel apologized to the Chinese today, just as it has wherever its toys are sold," the company said.

Mattel had made clear previously that most of its recalls were a result of magnet-related design flaws, not manufacturing slip-ups.

There is little doubt that China is worried about the ability of its manufacturers to maintain quality and standards. Some $7.5 billion, or 80 percent, of the world's toys are made in China, and both domestic and U.S. companies doing business there said this week that China's central government has been cracking down on its manufacturers in an attempt to protect its "Made in China" brand.

Pushed by Beijing, local inspectors have increased visits to factories and have redoubled efforts to verify which plants are certified to export and which are not.

Friday's apology, however, came after weeks of complaints from a chorus of Chinese officials that Mattel had failed to supervise its Chinese contractors sufficiently and had overstated the extent to which those companies contributed to the recalls.

In an extraordinary session in the Beijing office of Chinese product-safety chief Li Changjiang, Thomas Debrowski, Mattel's executive vice president for worldwide operations, endured Li's scolding in front of reporters invited to the event.

"Our reputation has been damaged lately by these recalls," Debrowski said, according to reports. "And Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys."

Debrowski added that "we understand and appreciate deeply the issues that this has caused for the reputation of Chinese manufacturers."

Li reminded Debrowski that "a large part of your annual profit ... comes from your factories in China. This shows that our cooperation is in the interests of Mattel, and both parties should value our cooperation. I really hope that Mattel can learn lessons and gain experience from these incidents."

Protecting its franchise

Given the vast importance of China's reputation as the world's premier low-cost manufacturer, Shenkar said it is not surprising that the central government would move aggressively to protect that franchise.

On the one hand, China fully recognizes that its food- and product-safety problems are very real, both in terms of exports and domestic consumption. And it has assigned its top problem solver, Vice Premier Wu Yi, to work behind the scenes to design better regulatory systems.

Already, the central government is letting it be known that local officials, once focused almost entirely on fostering economic growth, must start to weed out the weak players that have existed on the edge of China's economy and contribute to quality problems.

"They told me that they want the small factories that do not have comprehensive testing programs to go away," said one official at a medium-size U.S. toy company, who asked not to be named. "They actually said that to me."

At the same time, China is intent on shifting the blame for some of the quality problems and found a vulnerable target in Mattel.

Design flaws

Mattel did recall more than 2 million toys for lead paint problems caused by Chinese manufacturers this summer. But it also lumped in about 18 million toys with small magnets that could fall off and be swallowed by children, causing dangerous abdominal injuries. Those toys suffered from design flaws originating from Mattel's labs.